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Section D. Parents’ Dependency and Indemnity Compensation (DIC)

Overview

|In This Section |This section contains the following topics: |

|Topic |Topic Name |

|1 |Original and New Awards |

|2 |Deductible Expenses |

|3 |Proportionate Calculation of Income for Veterans Affairs Purposes (IVAP) |

|4 |Adjustments Based on Changes in Income |

|5 |Waiver of Retirement Income |

|6 |Changes in the Marital or Dependency Status of Parents |

|7 |Sale or Transfer of Real Estate or Personal Property |

1. Original and New Awards

|Introduction |This topic contains information on Parents’ Dependency and Indemnity Compensation (DIC) original and reopened |

| |awards. It includes information on |

| | |

| |how income for Department of Veterans Affairs purposes (IVAP) is determined on a calendar-year basis |

| |the determination of Parents’ Dependency and Indemnity Compensation (DIC) income limit |

| |cost-of-living adjustments (COLAs) |

| |countable income for Parents’ DIC |

| |income that is not countable |

| |the spouse’s income |

| |entries for Parents’ DICa future commencing date |

| |scheduling future adjustments |

| |semiannual DIC payments |

| |finding information on deferred determinations and amending income information. |

|Change Date |January 25, 2016 |

|a. IVAP Determined on |Income for Department of Veterans Affairs purposes (IVAP) for Parents’ Dependency and Indemnity Compensation (DIC)|

|Calendar-Year Basis |is calculated on a calendar- year basis. IVAP is based on income received and expenses paid during the period |

| |January 1 through December 31 of the same year. |

| | |

| |Note: |

| |This is true regardless of when VA receives the claim. There is no “initial period” for Parents’ DIC as there is |

| |for Improved Pension. |

| | |

| |Example: If a Parents’ DIC claim is received in June 2006, VA first considers IVAP for all of calendar-year 2006.|

|b. Determination of |The annual income limit for a Parents’ DIC claimant is determined by marital status. A change in the claimant’s |

|Parents’ DIC Income Limit|marital status may change both the income limit and the monthly rate of DIC payable. |

| | |

| |Note: Parents’ DIC granted under 38 USC 1151 requires income calculation just as if Parents’ DIC was granted for |

| |direct service-connected death. |

| | |

| |Reference: For information about income limits, refer to the Parents’ DIC rate charts in M21-1, Part I, Appendix |

| |B. |

|c. COLA Adjustments |If Social Security (SS) benefits are increased as a result of a SS cost-of-living adjustment (COLA), Parents’ DIC |

| |income limits and rates are increased also. Not all beneficiaries get an increase as a result of the COLA. |

| | |

| |Example: A beneficiary who is receiving the minimum monthly rate of $5 may continue to receive $5 per month. |

|d. Countable Income for |The following types of income constitute countable income for Parents’ DIC purposes: |

|Parents’ DIC | |

| |total income from employment, business (minus operating expenses), investments, interest, or rents |

| |income of a parent’s spouse with whom the parent lives |

| |inheritances of money (but not property) |

| |gifts of property or money, including contributions from adult children |

| |unemployment compensation |

| |retirement type benefits are counted at the rate of 90 cents on the dollar |

| |life insurance proceeds and the proceeds of commercial annuities are counted at the rate of 90 cents on the |

| |dollar, and |

| |compensation for injury or death is countable. |

| | |

| |Notes: |

| |SS, Railroad Retirement, Civil Service Annuity, military retired pay and other public or private retirement |

| |benefits are all counted at the rate of 90 cents on the dollar under 38 CFR 3.262(e)(4). |

| |The beneficiary may deduct medical expenses and legal expenses incident to recovery for the injury or death for |

| |which compensation was paid. |

| |Although certain income is counted at 90 cents on the dollar, the system automatically deducts the 10 percent, |

| |therefore, enter gross amounts. |

| | |

| |References: For specific inclusions for Parents’ DIC countable income, see 38 CFR 3.261 and 38 CFR 3.262. |

|e. Income That Is Not |The following types of income are not countable for Parents’ DIC purposes: |

|Countable for Parents’ | |

|DIC |income of children (children are not dependents on Parents’ DIC awards) |

| |inheritances of property (as opposed to money) |

| |the value of maintenance by a relative, friend, or organization |

| |Welfare and Supplementary Security Income (SSI) |

| |Department of Veterans Affairs (VA) pension or compensation benefits |

| |Servicemembers’ Group Life Insurance (SGLI), United States Government Life Insurance (USGLI), and National Service|

| |Life Insurance (NSLI) proceeds |

| |proceeds of casualty insurance policies up to the fair market value of the property immediately preceding the loss|

| |proceeds of cashed-in life insurance policies |

| |proceeds of cashed-in savings bonds |

| |payments of a bonus or similar cash gratuity by any State based upon service in the Armed Forces |

| |SS lump-sum death benefit |

| |payments received under the Radiation Exposure Compensation Act (RECA), Public Law (PL) 101-426 |

| |payments under section 103(c)(1) of the Ricky Ray Hemophilia Relief Fund Act of 1998 |

| |payments under the Energy Employees Occupational Illness Compensation Program |

| |payments to certain eligible Aleuts under 50 U.S.C Appx. 1989c-5. |

| |the value of an increase of stock inventory of a business |

| |an employer’s contributions to health and hospitalization plans for either an active or retired employee, and |

| |any other payment excluded by statute. |

| | |

| |References: For |

| |specific exclusions for Parents’ DIC countable income, see 38 CFR 3.261 and 38 CFR 3.262 |

| |information on cashed-in savings bonds and life insurance policies, see M21-1, part V, Subpart iii, 1.D.7, and |

| |information on payments specifically excluded by statute, see M21-1, Part V, Subpart iii, 1.I.11. |

|f. Spouse’s Income for |The income of a Parents’ DIC claimant’s spouse is a factor in determining IVAP if the claimant and spouse are |

|Parents’ DIC |living together. This is equally the case if |

| | |

| |both parents of a Veteran are living together, or |

| |one or both parents have remarried and one or both are living with a new spouse. |

| | |

| |It makes no difference whether the spouse’s income is actually available to the claimant. If the parent is |

| |married and living with a spouse, the spouse’s income is countable. If the parents are not living together, the |

| |not living with spouse rate chart applies and the spouse’s income is not countable. |

| | |

| |Reference: For more information about changes in marital status, see M21-1, Part V, Subpart iii, 1.D.6. |

|g. Entries for Parents’ |Original and new Parents’ DIC awards must always contain complete income information for the parent. If the |

|DIC |parent and spouse live together, complete income information for the spouse must also be shown. |

| | |

| |If two parents of the Veteran live together, each parent’s financial screen should mirror the financial screen for|

| |the other parent’s award and cross reference the other parent’s receipt of DIC. |

| | |

| |Note: Both parents have separate entitlement to Parents’ DIC, even if they live together. For example, if each |

| |parent is entitled to the minimum Parents’ DIC payment of $5 monthly, each parent receives $5 monthly. |

| | |

| |Reference: For more information about entry of medical expenses, see M21-1, Part V, Subpart iii, 1.D.2. |

|h. Future Commencing |Generally, original and new awards should not provide for a future commencing date. However, award action may be |

|Date for Parents’ DIC |taken to provide for a payment date as of the first day of the next year, if the evidence establishes |

| | |

| |nonentitlement for the current (received) year because of excessive income, and |

| |entitlement for the next calendar year based on anticipated (reduced) income for the next calendar year. |

|i. Scheduling Future |Original and new awards must provide adjustments effective the beginning of the next year when it is determined |

|Adjustments |that the parent’s IVAP for the next calendar year is different from current calendar year IVAP. |

| | |

| |If there is an increased rate payable for the next year, 38 CFR 3.31 may apply. However, do not apply the delayed|

| |payment provision of 38 CFR 3.31 if |

| |the parent is not entitled for the year the claim is received but is entitled for the following year. In such a |

| |case, award benefits from January 1. |

| | |

| |Generally, awards should not reflect future income changes for any year beyond the immediate next year, even |

| |though they might be reasonably anticipated. |

|j. Semiannual Parents’ |If the parent’s monthly rate is between the minimum rate of $5 and the rate which is four percent of the maximum |

|DIC Payments |rate payable (based on $0 IVAP and Aid and Attendance (A&A)), the system makes payments semiannually on or about |

| |June 1 and December 1. |

|l. Finding Information |For information on |

|on Deferred | |

|Determinations and |deferred determinations, see M21-1, Part V, Subpart iii, 1.A.4, and |

|Amending Income |the time limit to amend income information, see M21-1, Part V, Subpart iii, 1.A.5. |

|Information | |

2. Deductible Expenses

|Introduction |This topic contains information on deductible expenses. It includes information on |

| | |

| |medical expenses exceeding 5 percent and an example |

| |allowable medical expenses |

| |whose medical expenses are deductible |

| |prospective medical expenses |

| |final expenses |

| |the exclusion of income from the operation of a business |

| |the exclusion of disability retirement expenses, and |

| |the deductible limit for disability retirement expenses. |

|Change Date |June 12, 2015 |

|a. Medical Expenses |Unreimbursed medical expenses that exceed 5 percent of reported annual income can be deducted under 38 CFR |

|Exceeding 5 Percent |3.262(l). |

| | |

| |Important: Reported annual income refers to all countable family income before the 10-percent reduction for |

| |retirement income. Reported annual income does not include any income that is not countable for Parents’ DIC |

| |purposes. |

|b. Example: Medical |Situation: A DIC parent has SSI income of $5,000 per year and reports paying unreimbursed medical expenses of |

|Expense Exceeding 5 |$2,000. The claimant’s spouse has retirement income of $5,000 per year and earned income of $2,000 per year. |

|Percent | |

| |Calculation: The table below outlines the calculation for determining the deductible medical expenses. |

|Step |Calculation |Description |

|1 |$5,000 |Spouse’s retirement income |

| |+ $2,000 |Spouse’s earned income |

| |$7,000 |Reported annual income |

|2 |$7,000 |Spouse’s retirement income |

| |x 0.05 |Five percent |

| |$350 |Five percent deductible |

|3 |$2,000 |Gross medical expenses |

| |- $350 |Five percent deductible |

| |$1,650 |Deductible medical expenses |

|Notes: |

|Because the parent’s SSI is not countable for Parents’ DIC, the SSI is not a factor in calculating the five |

|percent deductible. |

|The VSR should enter the gross amount of retirement and medical expenses.. |

|c. Allowable Medical |Allow all unreimbursed medical expenses that may reasonably be related to medical care. |

|Expenses | |

| |In general, the principles concerning current-law pension medical expenses are equally applicable in determining |

| |if a specific claimed medical expense can be allowed for Parents’ DIC. |

| | |

| |Reference: For more information about allowable medical expenses, see |

| |-1, Part V, Subpart iii, 1.G.2 |

| |M21-1, Part V, Subpart iii, 1.G.3, and |

| |M21-1, Part V, Subpart iii, 1.G.4. |

|d. Whose Medical |If a parent resides with a spouse, the spouse’s income is countable in determining the parent’s IVAP. It makes no|

|Expenses Are Deductible |difference whether the spouse is the Veteran’s other parent. |

|for Parents’ DIC | |

| |Likewise, if a parent lives with a spouse, family medical expenses paid by the spouse are deductible. Deductible |

| |medical expenses include amounts actually paid by the parent or the parent’s spouse (if they live together) for |

| |medical expenses of |

| | |

| |the parent |

| |the parent’s spouse |

| |minor or disabled children of the parent, or the parent’s spouse, who are actual or constructive members of the |

| |parent’s household, and |

| |parents of the parent, or the parent’s spouse, who are actual or constructive members of the parent’s household. |

| | |

| |Notes: |

| |A spouse is generally considered established for award purposes on the date the spouse is acquired, if the spouse |

| |is claimed within a year of this date. If not claimed within one year of the date the spouse was acquired, the |

| |spouse is established effective the date the claim for the spouse is received. Per 38 CFR 3.31, payment at the |

| |increased married rate is delayed until the first day of the following month. |

| |If a parent who is on the rolls from the beginning of a calendar year acquires a spouse during that calendar year,|

| |medical expenses paid by the spouse after the spouse is established are deductible for the entire year if the |

| |spouse pays them at any time during that year. |

|e. Entering Medical |Use the table below to determine how to enter medical expenses |

|Expenses | |

|When … |Then … |

|two parents live together |show the medical expenses actually paid by both parents on each parent’s |

| |financial screen, and |

| |enter the same total medical expenses for |

| |payee 50, and |

| |payee 60. |

|the parent lives with a spouse who is|all allowable medical expenses paid by the parent and spouse should be |

|not the Veteran’s other parent |entered on the parent’s financial screen. |

|f. Example: Entering |Situation: Two parents live together. The father paid medical expenses of $1,000 and the mother paid medical |

|Medical Expenses |expenses of $2,000. |

| | |

| |Results: |

| |Enter $3000 as a deductible medical expense for both payee 50 and payee 60. |

| | |

| |Notes: |

| |The five-percent deductible for the medical expenses will automatically be calculated. |

| |Only one VA Form 21P-8416, Medical Expense Report, needs to be submitted if both parents are living together. |

|g. Prospective Medical |Generally, medical expenses are allowed after the factat the end of the calendar year. However, if income is |

|Expenses |static or can be predicted with a high degree of accuracy, and the parent requests that medical expenses be |

| |allowed prospectively, it is permissible to allow the exclusion during the current year. |

| | |

| |Do not allow prospective medical expenses in the absence of evidence indicating a clear and reasonable expectation|

| |that they will occur. For example, medical expenses may be prospectively allowed when the claimant is in need of |

| |regular aid and attendance or nursing home treatment or there is a history of substantial recurring expenditures |

| |for a medical condition. |

| | |

| |If prospective medical expenses were allowed for a calendar year, but actual expenses for that calendar year were |

| |lower than projected, adjust or discontinue the award effective the beginning of that calendar year. |

|h. Final Expenses |Unreimbursed expenses of the Veteran’s last illness and burial may be deducted as final expenses when paid by the |

| |parent or by the parent’s spouse, if the parent and spouse live together. |

| | |

| |Unreimbursed expenses of the parent’s deceased spouse’s last illness and burial and just debts may be deducted as |

| |final expenses when paid by the parent. |

| | |

| |Deduct final expenses during the calendar year during which payment was made. However, payments made by the |

| |parent during the year following the year during which the Veteran or parent’s spouse died may be deducted from |

| |income for the year of last illness and burial, if it would be more advantageous to the claimant, per 38 CFR |

| |3.262(o) and 38 CFR 3.262(p). |

|i. Exclusion of Income |Expenses excluded to arrive at income from rentals, business, or a profession under 38 CFR 3.262(a)(2) are not |

|From the Operation of a |entered as deductible. Enter the net business income. |

|Business |. |

| | |

| |Note: Depreciation is not a deductible business expense for VA, although it is for the IRS. |

|j. Exclusion of |Under 38 CFR 3.262(i), consider medical, legal, and other expenses incurred prior to an award of, and incident to,|

|Disability Retirement |compensation based on permanent and total disability or death from any of the following sources as deductible |

|Expenses |expenses: |

| | |

| |Office of Workers’ Compensation |

| |Department of Labor (DoL) |

| |Social Security Administration (SSA) |

| |Railroad Retirement Board (RRB), or |

| |any workers’ compensation or employers’ liability statute or commercial insurance. |

| | |

| |Use VA Form 21-8416b, Report of Medical, Legal or Other Expenses Incident to Recovery for Injury or Death, to |

| |develop the amounts the claimant has actually paid during the calendar year for which the claimant has not been |

| |(and will not be) reimbursed by insurance or another agency. |

| | |

| |The exclusion applies only one time; that is, when the disability retirement or other compensation is initially |

| |awarded. The legal as well as medical expenses are deductible from the specific disability retirement benefit |

| |under 38 CFR 3.262(i)(1). After this one-time exclusion, any medical expense deductions in these cases are |

| |governed by 38 CFR 3.262(1). |

| | |

| |Note: 38 CFR 3.262(i) refers to the Bureau of Employees’ Compensation; this bureau was abolished in 1974. |

| | |

| |Reference: For the most recent statutory income exclusions that apply to all VA income-based benefits, see M21-1,|

| |Part V, Subpart iii, 1.I.11. |

|k. Deductible Limit for |The amount deducted may not exceed the total (annual) disability retirement or compensation payments to which the |

|Disability Retirement |expenses are incident. When computing countable income, only the balance, if any, remaining after deducting these|

|Expenses |expenses is subject to the 10 percent reduction for retirement type expenses. |

| | |

| |Note: 10 percent for retirement-type income is automatically deducted. Enter the net amount after deducting |

| |medical or legal expenses but before deducting the 10 percent. |

3. Proportionate Calculation of IVAP

|Introduction |This topic contains information on the proportionate calculation of IVAP. It includes information on |

| | |

| |the advantages of proportionate IVAP |

| |calculating proportionate IVAP and an example of this procedure |

| |the authorization to use proportionate IVAP |

| |proportional IVAP award entries, and |

| |letter requirements when proportional IVAP is used. |

|Change Date |June 12, 2015 |

|a. General Information |IVAP for Parents’ DIC purposes is determined on a calendar-year basis. However, for purposes of original and |

|on Proportionate |reopened awards, after a period of nonentitlement, it is possible to calculate a proportionate IVAP if this would |

|Calculation of Income |be to the claimant’s advantage. |

| | |

| |For Parents’ DIC, income received at any time during the calendar year of entitlement counts, even if it is |

| |received before the effective date. This is true unless VA calculates the proportionate IVAP for the partial year|

| |and bases benefits on that amount instead of the calendar-year IVAP. |

| | |

| |When calculating the proportionate IVAP, VA disregards income received by a Parents’ DIC claimant prior to the |

| |effective date. |

| | |

| |The proportionate IVAP is the amount that the parent(s)’ IVAP would have been if income and expenses had been |

| |received and paid at the same rate for the entire calendar year as they were from the effective date to the end of|

| |the calendar year. |

| | |

| |Example: |

| |A Parents’ DIC claim is received on July 15, 2006. VA must consider all of the parent’s 2006 IVAP. |

| |Alternatively, VA may calculate the parent’s proportionate IVAP. This is the amount the parent’s 2006 IVAP would |

| |have been if income and expenses for all of 2006 had been proportionate to income and expenses for July 15, 2006, |

| |through December 31, 2006. |

|b. Advantages of |Calculating the proportionate IVAP is only advantageous if the parent had income between the beginning of the |

|Proportionate IVAP |calendar year and the effective date of the award that is proportionally greater than the income the parent |

| |received or expects to receive between the date of claim and the end of the year. |

| | |

| |If the parent’s only income is a regular monthly income that does not change during the calendar year, the |

| |parent’s proportionate IVAP will equal the calendar-year IVAP. Calculating the proportionate IVAP is not |

| |necessary in this case. |

|c. Calculating |Follow the steps in the table below to make a proportionate computation. |

|Proportionate IVAP | |

|Step |Action |

|1 |Determine the IVAP from the effective date until the end of the calendar year by using normal |

| |procedures, such as 90 cents on the dollar. |

| | |

| |Notes: |

| |Do not apply 38 CFR 3.31 in this step. |

| |Do not consider any income received or expenses paid before the effective date. |

|2 |Multiply the result of Step 1 by 365. |

|3 |Determine the number of days remaining in the calendar year from the effective date to the end of |

| |the calendar year. |

| | |

| |Note: Count the effective date as Day 1 and December 31 as the last day.) |

|4 |Divide the result of Step 2 by the number of days remaining in the year of Step 3. |

|5 |Round down to the nearest dollar. (Drop the cents.) |

| | |

| |Result: This is the proportionate IVAP. |

|d. Example: Calculating|Situation: A parent files a claim for Parents’ DIC on September 29, 2005. As of September 29, there are 94 days |

|Proportionate IVAP |left in the calendar year. The parent expects to receive $1,200 in retirement income during the remainder of the |

| |calendar year. |

| | |

| |Calculation: The table below outlines the steps for calculating the parent’s proportionate IVAP. |

|Step |Calculation |Description |

|1 |$1,200 |Parent’s retirement income |

| |x $0.9 |90 cents on the dollar |

| |$1,080 |IVAP from effective date to end of year |

|2 |$1,080 |IVAP |

| |x 365 |Total number of days in the calendar year |

| |$394,200 | |

|3 |$394,200 | |

| |/ 94 |Divide by number of days remaining in the calendar year and drop the cents |

| |$4,193 |Proportionate IVAP |

|Note: M21-1, Part I, Appendix C, Tables for Expanding Proportionate Income Amounts may be used for these |

|calculations. In the example above, the factor for September 29 (3.8829) is multiplied by IVAP from the |

|effective date until the end of the calendar year ($1,080). The end result is the same, a proportionate IVAP |

|of $4,193. |

|e. Authorization to Use |Using the proportionate IVAP is authorized for original awards and reopened awards after a period of |

|the Proportionate IVAP |nonentitlement. |

| | |

| |For the initial year of an original or reopened award, base the award on actual calendar year IVAP or proportional|

| |IVAP, whichever is lower. |

|f. Proportional IVAP |When the proportionate IVAP provides the greater benefit from the effective date to the end of the initial year |

|Award Entries | |

| |use the proportionate IVAP as the award line IVAP |

| |enter the proportionate IVAP as other annual income on the financial screen which corresponds to the initial award|

| |line |

| |Annotate the award to indicate that a proportional IVAP was used. |

| | |

| |Note: The first award line of the next calendar year must show the actual expected income. |

|g. Letter Requirements |If a proportionate calculation is advantageous prepare a locally-generated letter explaining the basis for the |

|When Proportional IVAP |award. |

|Used | |

| | |

| | |

4. Adjustments Based on Changes in Income

|Introduction |This topic contains information on adjustments of Parents’ DIC based on changes in income. It includes |

| |information on |

| | |

| |applying the end-of-the-month rule to reductions and discontinuances and two examples of this procedure |

| |how the end-of-the-month rule requires date of receipt of income or increased income |

| |adjustments based on reductions in income and an example |

| |the time limit to amend income information, and |

| |handling applications after renouncement of Parents’ DIC. |

|Change Date |June 12, 2015 |

|a. Applying the |The end-of-the-month rule applies to Parents’ DIC reductions and discontinuances because of increases in income, |

|End-of-the-Month Rule to |per 38 CFR 3.660(a)(2). However, income is still counted on a calendar year basis. It is not annualized like |

|Reductions and |Improved Pension income. This means that for Parents’ DIC, income is often not counted for a full 12 months. |

|Discontinuances | |

| |The end-of-the-month rule was made applicable to Parents’ DIC cases by PL 95-588 which was effective January 1, |

| |1979. Prior to January 1, 1979, the end-of-the-year rule applied to Parents’ DIC. |

| | |

| |Note: Although 38 CFR 3.660(a)(2) states that such reductions and discontinuances are effective the end of the |

| |month (called the “end-of-the-month rule”), VA pays benefits through that last day and therefore the actual date |

| |of reduction or discontinuance (“no-pay” date) is the first day of the following month. |

|b. Example 1: Applying |Situation: One of two parents with a spouse is being paid DIC based on $0 IVAP. The parent reports that his |

|the End-of-the-Month Rule|spouse started receiving earned income of $600 per month on August 7, 2006. The spouse expects to receive a total|

|to Reductions and |of $3,000 in earned income between August 7, 2006, and January 1, 2007. |

|Discontinuances | |

| |Result: Adjust the award as shown in the table below: |

|Date |DIC Rate |IVAP |Reason |

|09-01-2006 |$251 |3000 |Apply the end-of-the-month rule to count IVAP of |

| | | |$3,000 from September 1, 2006. |

|01-01-2007 |$5 |7200 |Count $600 x 12. The DIC rate decreases on January |

| | | |1, 2007. If the rate had increased, the effective |

| | | |date would have been February 1 because of 38 CFR |

| | | |3.31. |

|c. Example 2: Applying |Situation: A parent is being paid DIC based on $0 IVAP. The parent starts receiving retirement income of $800 |

|the End-of-the-Month Rule|per month on April 1, 2005. The parent receives retirement income of $7,200 during calendar year 2005. In |

|to Reductions and |January 2006, the parent reports medical expenses of $2000 paid during the calendar year 2005. |

|Discontinuances | |

| |Result: Count IVAP of $6,480 ($7,200 x 0.9) effective May 1, 2005. (If the parent had no other income, the |

| |parent gets no advantage from the medical expenses until May 1, 2005, the date that VA first counts the parent’s |

| |income). |

|d. How the |The end-of-the-month rule applies only when an identifiable date of receipt of income or increased income can be |

|End-of-the-Month Rule |determined. If development does not clearly reveal the date income was received |

|Requires Date of Receipt | |

|of Income or Increased |count the new or increased income from the beginning of the calendar year during which it was received, and |

|Income |fully advise the claimant of the action taken. |

| | |

| |If the claimant later submits evidence showing the date of receipt or increase, apply the end-of-month rule and |

| |adjust accordingly. |

| | |

| |In most instances it is not possible to ascertain a specific date for increases in interest, dividends and |

| |irregular earned income. Do not develop for the dates of increases in this type of income. |

| | |

| |Example: A parent was paid based on expected interest income of $300 during calendar year 2006. The parent later|

| |reports that 2006 interest income was actually $321. Count interest income of $321 from January 1, 2006. Do not |

| |develop for the date interest income changed. |

|e. Adjustments Based on |Parents’ DIC income is calculated on a calendar year basis. If income is reduced for a particular calendar year, |

|Reductions in Income |adjust as of the |

| | |

| |effective date (for original and reopened awards) |

| |beginning of the calendar year, or |

| |date from which income was previously counted (when VA applied the end-of-the-month rule for initial income |

| |counting). |

| | |

| |If a change in IVAP causes an increase in the monthly rate compared to the rate for the last month of the prior |

| |calendar year, 38 CFR 3.31 applies. When 38 CFR 3.31 does apply, carry forward the December rate for the month of|

| |January and pay the increased rate from February 1. |

|f. Example: Adjustments|Situation: A sole surviving parent was paid DIC of $207 per month effective December 1, 2004, based on IVAP of |

|Based on Reductions in |$4,300 from earnings. At the end of 2005, the parent reported that earnings income stopped effective June 1, |

|Income |2005. The total earned income received during 2005 was $2,100. |

| | |

| |Result: Adjust the award as shown in the table below: |

|Date |Rate |IVAP |Reason |

|12-01-2004 |$207 |4300 |Previous rate |

| | | | |

| | | |Note: This award line is not required. |

|02-01-2005 |$383 |2100 |Increased rate effective 01-01-2005; 38 CFR 3.31 |

| | | |applies |

|12-01-2005 |$403 |2100 |Cost-of-living adjustment (COLA) |

|02-01-2006 |$507 |0 |Income removed; 38 CFR 3.31 applies |

|g. Time Limit to Amend |A DIC parent can amend an income report any time within the calendar year for which income is received or the |

|Income Information |following calendar year, per 38 CFR 3.660(b). |

|h. Handling Applications|Under 38 CFR 3.106, an application for Parents’ DIC filed within one year after renouncement of that benefit is |

|After Renouncement of |not treated as an original application. Benefits are payable as if the renouncement had not occurred. |

|Parents’ DIC | |

| |This precludes the planned renouncement of the benefit prior to receipt of nonrecurring income to avoid having |

| |that nonrecurring income used to calculate IVAP. |

5. Waiver of Retirement Income

|Introduction |This topic contains information on the waiver of retirement income. It includes information on |

| | |

| |sources of income |

| |documenting the gross retirement amount |

| |income considerations |

| |determining the waive amount and an example of this procedure, and |

| |applying the end-of-the-month rule. |

|Change Date |June 12, 2015 |

|a. Sources of Income |Under 38 CFR 3.262(h), a Parents’ DIC claimant may waive all or part of retirement received from the following |

| |sources without counting the amount for Parents’ DIC purposes: |

| | |

| |Civil Service Retirement and Disability Fund |

| |Railroad Retirement Board |

| |District of Columbia firemen, policemen, or public schoolteachers, and |

| |Former United States Lighthouse Service. |

|b. Documenting the Gross|When the parent reports that a waiver of retirement income has been established or amended, request a copy of the |

|Retirement Amount |communication from the retirement source showing the gross retirement amount before the waiver and the net amount |

| |after the waiver. If necessary, request a current income statement also. |

| | |

| |Note: The Gross Monthly Annuity shown on the chart on the Civil Service award notices (BRI 49-127) is actually |

| |the post-waiver amount. Under REASON FOR ADJUSTMENT there should be a printed statement stating “WITHOUT WAIVER, |

| |YOUR GROSS WOULD BE $[amount].” This is the gross retirement amount prior to waiver. |

|c. Income Considerations|When determining the optimum amount to be waived, consider income from other sources which are subject to |

| |fluctuations, such as |

| | |

| |interest income |

| |rental income, or |

| |farm income. |

|d. Determining the |Follow the steps in the table below if the parent requests advice in determining the amount to be waived. |

|Waived Amount | |

|Step |Action |

|1 |Calculate the net countable income, not including the retirement benefit. |

|2 |Subtract this net countable income from the applicable maximum DIC parent income limit. |

|3 |Multiply the gross amount of the retirement benefit by 0.9 |

| |subtract the amount obtained in Step 2, and |

| |round the result to the next higher even $10. |

| | |

| |Result: This is the minimum amount to waive from the annual retirement benefit. |

|4 |Is the amount from Step 3 greater than 0? |

| | |

| |If yes |

| |advise the parent to waive this amount, and |

| |go to Step 5. |

| | |

| |If no |

| |advise the parent that a waiver is not to his/her advantage, and |

| |this ends the procedure. |

|5 |Calculate the IVAP after the waived amount from step 3 is determined |

|6 |Once the amount to be waived has been determined |

| | |

| |Enter the total retirement amount in the financial screeen, and |

| |Perform a GAO to enter the calculated IVAP to determine the monthly Old Law Pension rate. |

|e. Example: Determining|Situation: A sole surviving parent (not living with a spouse) with entitlement to A&A receives $6,096 in Civil |

|the Waived Amount Page 1 |Service retirement. The parent also receives $5,600 in SS and $2,400 in stock dividends. |

| | |

| |Result: The resulting calculations below use the income limit in effect on December 1, 2005. |

|Step |Calculation |Description |

|1 |$5,040 |SS with 10 percent deducted |

| |+ $2,400 |Dividends |

| |$7,440 |Total |

|2 |$12,034 |Maximum Parents DIC Limit |

| |- $7,440 |Deduction |

| |$4,594 |Difference |

|3 |$6,096 |Civil Service retirement pay |

| |x 0.9 |10 percent deduction |

| |$5,486 |Civil Service retirement pay with 10 percent deduction |

|4 |$5,486 |Civil Service retirement pay with 10 percent deduction |

| |- $4,594 |Difference from Step 2 |

| |$892 |Basis for waived amount |

| | | |

| |$4,676 |Civil Service retirement pay counted as income |

|f. Example: Determining|Step |

|Parents DIC IVAP with |Data Entry Income Amount (If Applicable) |

|Waived Retirement |Computer Countable Income Amount |

| |Description |

| | |

| |1 |

| |$5,600 |

| |$5,040 |

| |SS (10 percent deduction) |

| | |

| | |

| |$6,096 |

| |$5,486 |

| |Civil Service retirement pay(10 percent deduction) |

| | |

| | |

| |+ $2,400 |

| |+ $2,400 |

| |Other income (dividends) |

| | |

| | |

| |$14,096 |

| |$12,926 |

| |Subtotal |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| |2 |

| |$14,096 |

| |$12,926 |

| |Subtotal |

| | |

| | |

| | |

| |- $900 |

| |Waived Retirement Expense |

| | |

| | |

| | |

| |$12,026 |

| |IVAP |

| | |

|Enter IVAP of $12,926 under GAO. |

| |

|Note: IVAP of $12,026 consists of |

|$5,040 SS |

|$4,586 Civil Service retirement pay, and |

|$2,400 dividends. |

|g. Applying the |Apply the end-of-the-month rule when reducing or discontinuing an award if a parent receives an additional amount |

|End-of-the-Month Rule |of retirement income solely as the result of a legislated increase or COLA and not by reason of a change in the |

| |amount waived. |

| | |

| |DIC cases that are discontinued may be reinstated on the basis of a revised waiver. |

6. Changes in the Marital or Dependency Status of Parents

|Introduction |This topic contains information on changes in the marital or dependency status of parents. It includes |

| |information on |

| | |

| |changes in marital status |

| |handling situations when evidence is not received |

| |marital adjustments for the death of the other parent |

| |handling the gain of a spouse resulting in an |

| |increased rate, and |

| |increased income |

| |handling the loss of a |

| |spouse resulting in a decreased rate or discontinuance |

| |spouse with income resulting in a increased rate |

| |spouse with income resulting in a reduction, discontinuance, or no change in rate and three examples of this |

| |procedure |

| |the spouse’s medical expenses |

| |handling situations when the status of the other parents is unknown, and |

| |. |

|Change Date |June 12, 2015 |

|a. General Information |Any change in a parent’s marital status requires application of a different rate table from M21-1, Part I, |

|on Changes in Marital and|Appendix B to determine the parent’s rate after the change in marital status. This includes |

|Dependency Status | |

| |death of the other surviving parent |

| |death of a spouse who is not the Veteran’s other parent |

| |separation |

| |divorce, or |

| |remarriage or reconciliation. |

| | |

| |On receipt of notice of a change in marital status, use a locally-generated letter to request a current income |

| |statement. |

|b. Changes in Marital |If two parents were living together, “the rate payable prior to the change” means the combined rate of the two |

|Status |parents. |

| | |

| |Documentary evidence of the change in marital status is required only if the change gives the parent a higher rate|

| |than the rate payable prior to the change and if the parent’s statement is not sufficient or contradicts other |

| |evidence of record. |

| | |

| |Reference: For information about what constitutes acceptable evidence of marriage, divorce, or death, and when |

| |the beneficiary’s statement is sufficient, see M21-1, Part III, Subpart iii, 5. |

|c. Handling Situations |If the required evidence concerning either income or marital status is not received within the specified period, |

|When Evidence Is Not |under 38 CFR 3.652, assume that Parents’ DIC entitlement ceased to exist as of the end of the year when it was |

|Received |last shown by evidence of record to have existed. |

| | |

| |Notes: |

| |Under 38 CFR 3.204 or 38 CFR 3.217, the “required evidence” may be a statement. |

| |If a third party reported the change in income or marital status, follow the due process procedures in M21-1, Part|

| |I, 2.B, before discontinuing the award. |

|d. Marital Adjustments |On the death of one of two parents, discontinue the award to the deceased parent effective the first day of the |

|for the Death of the |month of death under 38 CFR 3.500(g)(1). |

|Other Parent | |

| |Use the table below to determine the adjustment. |

|If the death of the other parent … |Then … |

|and an accompanying income change result in the |pay the increased rate to the surviving parent from the |

|surviving parent being entitled to a higher rate of DIC |first day of the month that follows the month of death, |

| |per 38 CFR 3.31. |

|results in |adjust the surviving parent’s award effective the first |

| |day of the month of the deceased parent’s death, per 38 |

|no change in the rate |CFR 3.651. |

|a reduction in the rate, or | |

|an increase that is unrelated to a change in income |Remember: The term “effective date” for reduction or |

| |discontinuance as used in 38 CFR is the “pay through” |

| |date. |

|e. Handling Gain of a |If an increased rate of Parents’ DIC is payable because a parent marries, the increase is effective the date of |

|Spouse Resulting in an |marriage. |

|Increased Rate | |

| |If an increased rate of Parents’ DIC is payable because of resumed cohabitation, the increase is effective the |

| |date VA receives notice of the resumed cohabitation, per 38 CFR 3.660(c). |

| | |

| |Important: In case of either marriage or reconciliation, actual payment of the increased rate is from the first |

| |day of the month that follows the event. |

|f. Handling the Gain of |Under 38 CFR 3.660(a)(2), when a DIC parent marries, disregard income received by the spouse before the marriage. |

|a Spouse Resulting in |Count income received by the spouse on or after the date the spouse is established for award purposes (usually |

|Increased Income |from the date of the marriage). |

| | |

| |Make any reduction or termination required because of increased income of the spouse effective the first day of |

| |the month that follows the date the spouse is established for award purposes. |

| | |

| |Example: |

| |Situation: A sole surviving parent is receiving DIC at the rate of $507 per month, based on IVAP of $0. The |

| |parent marries on August 7, 2006. The spouse (who is not the Veteran’s other parent) earns $600 per month. The |

| |spouse expects to receive $3,000 during the remainder of calendar-year 2006. |

| | |

| |Result: Adjust the award as shown in the table below. |

|Date |Rate |IVAP |Reason |

|09-01-2006 |$331 |3000 |New spouse’s income counted from first day of month after |

| | | |marriage. |

|01-01-2007 |$12 |7200 |Count spouse’s full annual wages. |

|g. Handling the Loss of |Under 38 CFR 3.660(a)(2), if an award is reduced or discontinued because a spouse is lost due to death, divorce, |

|a Spouse Resulting in a |or annulment, apply the end-of-month rule and reduce or discontinue the award effective the first day of the month|

|Decreased Rate or |that follows the month of the event. Otherwise, reduce the award as of the date of the event. |

|Discontinuance | |

|h. Handling the Loss of |Stop counting the dependent’s income when the dependent is lost. |

|a Spouse With Income | |

|Resulting in an Increased|If the loss of the dependent and the dependent’s income result in an increased rate of DIC becoming payable, make |

|Rate |the actual adjustment the first day of the month that follows the date of the event per 38 CFR 3.31. |

|i. Handling the Loss of |If removing the dependent and the dependent’s income does not increase the rate payable, remove the dependent’s |

|a Spouse With Income |income the same date the dependent goes off the award. |

|Resulting in a Reduction,| |

|Discontinuance, or No |If the end-of-the-month rule applies to a reduction because the spouse was lost due to death, divorce, or |

|Change in Rate |annulment, remove the spouse’s income effective the first day of the month after the event. |

| | |

| |Note: If the loss is due to separation, the end-of-month rule does not apply. Remove the spouse’s income the |

| |date of the separation. |

|j. Examples: Loss of |Example 1: A sole surviving father with a spouse is paid DIC of $653 per month based on IVAP of $2,400 and A/A |

|Spouse With Income |entitlement. The $2,400 represents the spouse’s monthly earnings of $200. The spouse dies on July 7, 2006. |

| |Adjust the award August 1, 2006, to remove the spouse and pay the rate of $781 per month based on IVAP of $0. |

| | |

| |Example 2: Same situation as in Example 1, except the $2,400 IVAP is the father’s. The spouse has no income. |

| |The father and spouse separate on July 7, 2006. Adjust the award July 7, 2006, to remove the spouse. The |

| |parents’ DIC rate does not change in this situation. |

| | |

| |Example 3: A surviving mother lives with a surviving father. They each receive DIC of $308 per month based on |

| |IVAP of $2,000. The $2,000 is from the mother’s lottery winnings received February 13, 2006. The $2,000 was |

| |first counted on the awards March 1, 2006. On July 7, 2006, the mother dies. Adjust the father’s award August 1,|

| |2006, to pay the dependency code 50/50 rate of $507 per month based on IVAP of $0. Discontinue the mother’s award|

| |on July 1, 2006. |

| | |

| |Note: In Example 3, the net Parents’ DIC payment is reduced from $616 monthly (two payments of $308) to $507. |

|k. Spouse’s Medical |If a parent who is on the rolls from the beginning of a calendar year acquires a spouse during that calendar year,|

|Expenses |medical expenses paid by the spouse after the date the spouse is established are deductible from the beginning of |

| |the calendar year. |

| | |

| |Example: |

| |Situation: A sole surviving parent is receiving DIC of $491 per month based on IVAP of $1,000 from interest. The|

| |parent marries on March 14, 2006. The spouse earns $500 per month. The spouse expects to receive $5,000 during |

| |the rest of calendar year 2006. Effective April 1, 2006, the parent is paid $91 per month based on IVAP of |

| |$6,000. At the end of the calendar year, the parent reports medical expenses of $3,000. The expenses were paid |

| |by the parent’s spouse for the spouse’s own medical expenses. All expenses were paid after March 14, 2006. |

| | |

| |Result: Allow the medical expenses from January 1, 2006. If the recalculated rate is greater than the December |

| |2005 rate, make the adjustment as of February 1, 2006, under 38 CFR 3.31. |

|l. Handling Situations |The rate of Parents’ DIC payable is affected by whether the claimant is a sole surviving parent or one of two |

|When the Status of the |parents. If a Parent’s DIC claimant cannot establish that the Veteran’s other parent is deceased, the parent must|

|Other Parent Is Unknown |be paid as one of two parents. |

| | |

| |Reference: For acceptable evidence of death, see M21-1, Part III, Subpart iii, 5.B.3. |

7. Sale or Transfer of Real Estate or Personal Property

|Introduction |This topic contains information on the sale or transfer of real estate or personal property. It includes |

| |information on |

| | |

| |the impact of the sale or transfer of real estate or personal property on Parents’ DIC |

| |sales in the course of business |

| |installment sales |

| |ensuring recorded information |

| |the principal versus interest, and |

| |installments made prior to entitlement. |

| |proceeds from cashed-in savings bonds and life insurance policies. |

|Change Date |June 12, 2015 |

|a. Impact of the Sale or|Income received from the sale of property is viewed as a conversion of assets and is not countable income for |

|Transfer of Real Estate |Parents’ DIC purposes except where |

|or Personal Property on | |

|Parents’ DIC |property is sold in the course of operating a business, or |

| |income from the sale of property is received by the claimant in installments. |

|b. Sales in the Course |If a beneficiary who operates a business sells property or merchandise in connection with the business, add any |

|of Business |profit received from sale of the property to other income of the business. |

|c. Installment Sales |An installment sale, for the purposes of M21-1, Part V, Subpart iii, 1, is any sale in which the seller receives |

| |more than the sales price over the course of the transaction. The actual number of installments is irrelevant. |

| | |

| |If a beneficiary sells property and receives payment in installments, count as income any amounts received over |

| |and above the sale price, but not until an amount equal to the sale price has been received by the seller, per 38 |

| |CFR 3.262(k)(5). |

| | |

| |Example: A DIC father sells his residence for $80,000. The parent receives a cash payment of $40,000 and a cash |

| |payment of $45,000. This is an installment sale for VA pension purposes and $5,000 is countable as income when |

| |the parent receives the $45,000. |

|d. Ensuring Recorded |Ensure the following information is of record before attempting to calculate countable income from sale of |

|Information |property: |

| | |

| |sales price |

| |amount of the down payment |

| |date the first installment payment is received |

| |frequency of installment payments |

| |amount of each installment payment, and |

| |date the last installment payment is received. |

|e. Principal Versus |It is not necessary to distinguish between payment of principal and interest in the installment sale context. As |

|Interest on Property |soon as the down payment and installment payments received by the parent equal the sales price, all amounts |

|Sales Made After DIC |greater than the sales price constitute countable IVAP. |

|Entitlement | |

| |Example: A parent reports the sale of a house for $60,000 on December 1, 2000. The parent received $20,000 down |

| |and receives installment payments of $420 per month for the next 10 years. The parent’s return from the sale of |

| |property exceeds $60,000 during December 2008. |

| | |

| |Result: Charge income of $5,040 effective January 1, 2009. |

|f. Installments Made |When installments are received as payment on a sale made prior to the date of entitlement to Parents’ DIC, count |

|Prior to Entitlement |only the interest payments as income. |

| | |

| |Secure from the parent a copy of the amortization schedule or similar document distinguishing between interest and|

| |principal. |

|g. Proceeds From |Proceeds from cashed-in savings bonds and cashed-in life insurance policies are considered profit realized from |

|Cashed-In Savings Bonds |the disposition of personal property and are therefore excluded under 38 CFR 3.262(k)(5). |

|or Life Insurance | |

|Policies |Important: Some savings bonds, such as Series HH U.S. Savings Bonds and some State or municipal bonds, pay |

| |interest to the holder without requiring the holder to redeem the bond. If interest is paid without redemption of|

| |the bond, the interest is countable income. |

| | |

| |Reference: For more information on these exclusions, see VAOPGCPREC 2-2010. |

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